Australia has now entered the living-with-COVID phase, and commercial activity has largely returned to normal.
However, the impact of COVID has not disappeared. Vacant shopfronts for lease are a common sight on the streets, and many landlords are facing tenants who fall behind on rent or use the premises in breach of their lease.
So in Australia, if you own a commercial property for lease and, in these difficult times, you end up with a difficult tenant on top of everything else, it can feel overwhelming. What can you do?
In fact, this is a very common situation. Imagine you have leased a commercial property to a tenant.
At first, everything seems fine — they pay rent on time and there are no arrears. Gradually, however, you notice that they are using the premises for purposes beyond what the lease allows, potentially causing damage to the property. How do you enforce the lease terms and protect your rights?
Today we will discuss your rights as a landlord in this situation and the options available to you in New South Wales.
1
Preventive Inspections
When a landlord signs a lease agreeing to rent out the premises, the tenant has the right to quiet enjoyment of the property. Quiet enjoyment means you cannot enter the premises or interfere with the tenant’s use of it.
However, the landlord may conduct routine inspections in accordance with the lease. When carrying out a routine inspection, you must arrange a time with the tenant and give them advance notice.
If your tenant refuses to let you enter the premises, the first step is to seek assistance from the NSW Small Business Commissioner.
You can then approach the NSW Civil and Administrative Tribunal (NCAT) — the state’s specialist tribunal for such disputes.
The NSW Small Business Commissioner can mediate between you and the tenant. They will issue a certificate confirming that mediation has taken place, which you must provide to NCAT before the hearing begins.
The dispute will be referred to NCAT’s Consumer and Commercial Division, and NCAT will then hold a hearing within 4 weeks. NCAT has the power to make a range of orders, including:
Ordering payment of relevant amounts
Determining possession of the premises
Making declarations regarding the parties’ rights, obligations and liabilities
2
Terminating the Lease
If the tenant is using the premises for purposes that go beyond the terms of the lease, the landlord may also choose to terminate the lease.
Commercial leases typically set out the circumstances in which the lease may be terminated if one of the parties is in breach.
If you wish to terminate the lease, you must follow the procedures set out in the lease or under state law.
In New South Wales, the landlord must first notify the tenant, letting them know that they are in breach of the lease. The notice should set out in detail how the tenant has breached the lease and require them to remedy the breach.
In the notice, you can also claim compensation. After giving notice to the tenant, the landlord must also wait a reasonable period of time before terminating the lease.
3
Make Good
Another option worth considering is requiring the tenant to make good the premises. This means the tenant must restore the property to the condition it was in before they began performing the lease.
Before a landlord asks a tenant to make good, they should check carefully whether this is expressly stated in the lease.
If your lease contains a make good clause, it will allow you to recover from your tenant the cost of repairs arising from unauthorised use of the premises, because they are obliged to keep and return the property to the condition it was in before they entered into the lease.
Final Thoughts
Strictly enforcing the use of your property is a complex process. It is important to note that entering the premises, commencing a dispute, or terminating a lease all require certain procedures to be followed. As a landlord, there are many avenues through which you can exercise your rights, and we recommend consulting our experienced lawyers for assistance.
